Possible elimination of 457(f)

[austin3515]

If the proposal goes through to eliminate 457(f) does that affect the following plan design:

$50,000 per year, vested in 5 years if continuously employed. Amounts paid out 30 days after vesting.

I thought that was just the simple constructive receipt doctrine which is still in tact. Eliminating 457f I would think does not impact that?

Clearly once it is vested it must be paid.  I realize that if 457f goes away the option for the participant to pay the taxes independently and leave the balances in their deferred is no longer an option (but for practical reasons I've never used that anyway).   

[EBECatty]

My understanding is this fact pattern would get picked up (for both tax-exempt and taxable employers) in the proposed new section 409B. And I think you would still have the deferral opportunity as long as you pay taxes upon vesting, much like the current 457(f) rules. Or am I missing the point of the question?

[austin3515]

I suppose, but I think what I'm getting at is, even they just deleted 409A and 457f, wouldn;t an arrangement such as I have described still work because they employee would not have constructive receipt until it became vested.

[EBECatty]

Yes, but constructive receipt on its own is looser than 457(f) (and proposed 409B) and can defer taxation until payment. So this design would work to defer tax until vesting, but many other types of plans would no longer work, despite the constructive receipt rules being looser than proposed 409B.

[Carol V. Calhoun]

It looked to me like they were basically just taking the principles of 457(f) and applying them to all employers, not just tax-exempt ones.  The only reason for repealing 457(f) is that it will no longer be necessary in light of 409B.  So your plan design would be unaffected.